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“Is Vast Inequality Necessary?”: Inequality Is Inevitable; The Vast Inequality Of America Today Isn’t

How rich do we need the rich to be?

That’s not an idle question. It is, arguably, what U.S. politics are substantively about. Liberals want to raise taxes on high incomes and use the proceeds to strengthen the social safety net; conservatives want to do the reverse, claiming that tax-the-rich policies hurt everyone by reducing the incentives to create wealth.

Now, recent experience has not been kind to the conservative position. President Obama pushed through a substantial rise in top tax rates, and his health care reform was the biggest expansion of the welfare state since L.B.J. Conservatives confidently predicted disaster, just as they did when Bill Clinton raised taxes on the top 1 percent. Instead, Mr. Obama has ended up presiding over the best job growth since the 1990s. Is there, however, a longer-term case in favor of vast inequality?

It won’t surprise you to hear that many members of the economic elite believe that there is. It also won’t surprise you to learn that I disagree, that I believe that the economy can flourish with much less concentration of income and wealth at the very top. But why do I believe that?

I find it helpful to think in terms of three stylized models of where extreme inequality might come from, with the real economy involving elements from all three.

First, we could have huge inequality because individuals vary hugely in their productivity: Some people are just capable of making a contribution hundreds or thousands of times greater than average. This is the view expressed in a widely quoted recent essay by the venture capitalist Paul Graham, and it’s popular in Silicon Valley — that is, among people who are paid hundreds or thousands of times as much as ordinary workers.

Second, we could have huge inequality based largely on luck. In the classic old movie “The Treasure of the Sierra Madre,” an old prospector explains that gold is worth so much — and those who find it become rich — thanks to the labor of all the people who went looking for gold but didn’t find it. Similarly, we might have an economy in which those who hit the jackpot aren’t necessarily any smarter or harder working than those who don’t, but just happen to be in the right place at the right time.

Third, we could have huge inequality based on power: executives at large corporations who get to set their own compensation, financial wheeler-dealers who get rich on inside information or by collecting undeserved fees from naïve investors.

As I said, the real economy contains elements of all three stories. It would be foolish to deny that some people are, in fact, a lot more productive than average. It would be equally foolish, however, to deny that great success in business (or, actually, anything else) has a strong element of luck — not just the luck of being the first to stumble on a highly profitable idea or strategy, but also the luck of being born to the right parents.

And power is surely a big factor, too. Reading someone like Mr. Graham, you might imagine that America’s wealthy are mainly entrepreneurs. In fact, the top 0.1 percent consists mainly of business executives, and while some of these executives may have made their fortunes by being associated with risky start-ups, most probably got where they are by climbing well-established corporate ladders. And the rise in incomes at the top largely reflects the soaring pay of top executives, not the rewards to innovation.

Don’t say that redistribution is inherently wrong. Even if high incomes perfectly reflected productivity, market outcomes aren’t the same as moral justification. And given the reality that wealth often reflects either luck or power, there’s a strong case to be made for collecting some of that wealth in taxes and using it to make society as a whole stronger, as long as it doesn’t destroy the incentive to keep creating more wealth.

And there’s no reason to believe that it would. Historically, America achieved its most rapid growth and technological progress ever during the 1950s and 1960s, despite much higher top tax rates and much lower inequality than it has today.

In today’s world, high-tax, low-inequality countries like Sweden are also both highly innovative and home to many business start-ups. This may in part be because a strong safety net encourages risk-taking: People may be willing to prospect for gold, even if a successful foray won’t make them quite as rich as before, if they know they won’t starve if they come up empty.

So coming back to my original question, no, the rich don’t have to be as rich as they are. Inequality is inevitable; the vast inequality of America today isn’t.

 

By: Paul Krugman, Op-Ed Columnist, The New York Times, January 15, 2016

January 18, 2016 Posted by | Economic Inequality, Tax Revenue, Taxes on the Wealthy | , , , , , , , , | Leave a comment

“No Recipe For Addressing Economic Inequality”: The Republican Candidates Can’t Say How Obama Wrecked The Economy

One of the most striking and mystifying aspects of the Republican presidential primary has been the candidates’ inability—or unwillingness—to offer up any kind of coherent economic prescription for the country. That didn’t change on Thursday night. On the Fox Business debate stage in South Carolina, the remaining GOP field had the floor to rebut President Barack Obama’s rosy picture of the American economy during this week’s State of the Union.

Instead, they pivoted to fear-mongering on foreign policy.

The tone was set with the debate’s very first question, posed to Senator Ted Cruz. Fox Business moderator Maria Bartiromo asked him to respond to Obama’s declaration earlier this week: “Anyone claiming that America’s economy is in decline is peddling fiction.”

That should have been a softball, ready for the surging candidate to hit out of the park. Instead, Cruz launched into a prepared digression on the American soldiers captured and released by Iran before addressing the actual question—with another digression. “The president tried to paint a rosy picture of jobs,” he said. “And you know, he’s right. If you’re a Washington lobbyist, if you make your money in and around Washington, things are doing great. The millionaires and billionaires are doing great under Obama.”

Cruz played on Obama’s own words on the sources of inequality in his State of the Union. “Food Stamp recipients didn’t cause the financial crisis; recklessness on Wall Street did,” Obama said on Tuesday. “Immigrants aren’t the reason wages haven’t gone up enough; those decisions are made in the boardrooms that too often put quarterly earnings over long-term returns. It’s sure not the average family watching tonight that avoids paying taxes through offshore accounts.”

Cruz turned that around, pinning the blame exclusively on the president for rising inequality—not on the wealthy. “Median wages have stagnated. And the Obama-Clinton economy has left behind the working men and women of this country,” he said.

It was like that all night: The candidates never took the bait Obama set up for them, to disprove they are doing anything but “peddling fiction” that his agenda—addressing economic inequality, immigration reform, and energy regulations—has left Americans worse off. Instead, the Republicans beat the drum on fear of ISIS and terrorism abroad, but never provided a counter to Obama’s economic claims.

If the GOP debate revealed one thing about these candidates’ views of rising inequality—a hot topic in the Democratic primary—it’s that they can’t quite bring themselves to cast the wealthy in a bad light.

Ohio Governor John Kasich said that Americans shouldn’t hate the rich—that’s just not American. People are “very concerned about” the economy, he said. “And they wonder whether somebody is getting something to—keeping them from getting it. That’s not the America that I’ve ever known. My father used to say, “Johnny, we never—we don’t hate the rich. We just want to be the rich.”’

Ben Carson shot back at Bernie Sanders and Clinton, who he claimed “would say it’s those evil rich people” who are to blame for inequality. Carson said they’re the wrong target; it’s “the evil government that’s putting all these regulations on us.”

Throughout the night, Republicans proved more comfortable playing to their base’s fear of terrorism than directly rebutting the president’s economic victory lap. Maybe that’s because they can’t muster the same strong descriptive language for how Obama has set fire to the economic world as they have for his foreign policy. So much easier to berate the president on his approach to ISIS all night, as New Jersey Governor Chris Christie did: “If you’re worried about the world being on fire, you’re worried about how we’re going to use our military, you’re worried about strengthening our military and you’re worried most of all about keeping your homes and your families safe and secure, you cannot give Hillary Clinton a third term of Barack Obama’s leadership,” he said.

But what about Obama’s leadership on the economy? The answers were more timid—with the exception, not surprisingly, of Donald Trump, who in his usual style promised he’d “make America rich again and make America great again.”

Why were the candidates so quiet about the economy on Thursday night? Simple. The Republicans don’t have a recipe for addressing economic inequality, instead focusing exclusively on tax breaks or highly regressive flat taxes that help the top earners. As my colleague Suzy Khimm has explained, “Bush, Marco Rubio, and Trump have all released tax plans that they are trying to sell as a boon for ordinary families.” That’s a hard sell, to say the least. A conservative estimate of Trump’s plan, for example, would lower the middle 40 to 50 percent of American wage earners’ taxes by 5.3 percent, but the wealthiest would see almost a 22 percent decrease. Carson and Cruz have called for flat taxes—a highly regressive policy.

Because they have such shallow policies to draw on, the GOP finds it easier to play on fears of an uncertain international landscape. That works just fine when they’re pitching themselves to an anxious, unhappy Republican base. But when one of these candidates faces Clinton or Sanders in the general election, the Democratic nominee will easily poke holes through his paper-thin economic message.

 

By: Rebecca Leber, The New Republic, January 15, 2015

January 15, 2016 Posted by | Economic Inequality, Economic Recovery, GOP Primary Debates | , , , , , , , , , , | 1 Comment

“Privilege, Pathology And Power”: What Happens To A Nation That Gives Ever-Growing Political Power To The Super Rich?

Wealth can be bad for your soul. That’s not just a hoary piece of folk wisdom; it’s a conclusion from serious social science, confirmed by statistical analysis and experiment. The affluent are, on average, less likely to exhibit empathy, less likely to respect norms and even laws, more likely to cheat, than those occupying lower rungs on the economic ladder.

And it’s obvious, even if we don’t have statistical confirmation, that extreme wealth can do extreme spiritual damage. Take someone whose personality might have been merely disagreeable under normal circumstances, and give him the kind of wealth that lets him surround himself with sycophants and usually get whatever he wants. It’s not hard to see how he could become almost pathologically self-regarding and unconcerned with others.

So what happens to a nation that gives ever-growing political power to the superrich?

Modern America is a society in which a growing share of income and wealth is concentrated in the hands of a small number of people, and these people have huge political influence — in the early stages of the 2016 presidential campaign, around half the contributions came from fewer than 200 wealthy families. The usual concern about this march toward oligarchy is that the interests and policy preferences of the very rich are quite different from those of the population at large, and that is surely the biggest problem.

But it’s also true that those empowered by money-driven politics include a disproportionate number of spoiled egomaniacs. Which brings me to the current election cycle.

The most obvious illustration of the point I’ve been making is the man now leading the Republican field. Donald Trump would probably have been a blowhard and a bully whatever his social station. But his billions have insulated him from the external checks that limit most people’s ability to act out their narcissistic tendencies; nobody has ever been in a position to tell him, “You’re fired!” And the result is the face you keep seeing on your TV.

But Mr. Trump isn’t the only awesomely self-centered billionaire playing an outsized role in the 2016 campaign.

There have been some interesting news reports lately about Sheldon Adelson, the Las Vegas gambling magnate. Mr. Adelson has been involved in some fairly complex court proceedings, which revolve around claims of misconduct in his operations in Macau, including links to organized crime and prostitution. Given his business, this may not be all that surprising. What was surprising was his behavior in court, where he refused to answer routine questions and argued with the judge, Elizabeth Gonzales. That, as she rightly pointed out, isn’t something witnesses get to do.

Then Mr. Adelson bought Nevada’s largest newspaper. As the sale was being finalized, reporters at the paper were told to drop everything and start monitoring all activity of three judges, including Ms. Gonzales. And while the paper never published any results from that investigation, an attack on Judge Gonzales, with what looks like a fictitious byline, did appear in a small Connecticut newspaper owned by one of Mr. Adelson’s associates.

O.K., but why do we care? Because Mr. Adelson’s political spending has made him a huge player in Republican politics — so much so that reporters routinely talk about the “Adelson primary,” in which candidates trek to Las Vegas to pay obeisance.

Are there other cases? Yes indeed, even if the egomania doesn’t rise to Adelson levels. I find myself thinking, for example, of the hedge-fund billionaire Paul Singer, another big power in the G.O.P., who published an investor’s letter declaring that inflation was running rampant — he could tell from the prices of Hamptons real estate and high-end art. Economists got some laughs out of the incident, but think of the self-absorption required to write something like that without realizing how it would sound to non-billionaires.

Or think of the various billionaires who, a few years ago, were declaring with straight faces, and no sign of self-awareness, that President Obama was holding back the economy by suggesting that some businesspeople had misbehaved. You see, he was hurting their feelings.

Just to be clear, the biggest reason to oppose the power of money in politics is the way it lets the wealthy rig the system and distort policy priorities. And the biggest reason billionaires hate Mr. Obama is what he did to their taxes, not their feelings. The fact that some of those buying influence are also horrible people is secondary.

But it’s not trivial. Oligarchy, rule by the few, also tends to become rule by the monstrously self-centered. Narcisstocracy? Jerkigarchy? Anyway, it’s an ugly spectacle, and it’s probably going to get even uglier over the course of the year ahead.

 

By: Paul Krugman, Op-Ed Columnist, The New York Times, January 1, 2016

January 2, 2016 Posted by | Donald Trump, Economic Inequality, Money in Politics | , , , , , , , , | Leave a comment

“Cronyism Causes The Worst Kind Of Inequality”: Friends Of The Rulers Appropriating Wealth For Themselves

Economic inequality has skyrocketed in the U.S. during the past few decades. That has prompted many calls for government policies to reverse that trend. Defenders of the status quo argue that rising inequality is a necessary byproduct of economic growth — if we don’t allow people the chance to become extremely rich, the thinking goes, they will stop working, investing, saving and starting businesses. A receding tide will then cause all boats to sink.

Critics of the status quo have responded with the claim that inequality doesn’t help growth, but instead hurts it. This view was given ammunition by a number of recent studies, which have found a negative relationship between how much income inequality a country has and how fast it grows. One example is an International Monetary Fund study from 2015:

[W]e find an inverse relationship between the income share accruing to the rich (top 20 percent) and economic growth. If the income share of the top 20 percent increases by 1 percentage point, GDP growth is actually 0.08 percentage point lower in the following five years, suggesting that the benefits do not trickle down. Instead, a similar increase in the income share of the bottom 20 percent (the poor) is associated with 0.38 percentage point higher growth.

A similar 2014 study from the Organization for Economic Cooperation and Development concluded the same thing. Interestingly, the negative correlation between inequality and growth is found even when controlling for a country’s income level. This isn’t simply a case of wealthier countries growing more slowly and also being more unequal.

So the evidence is pretty clear: Higher inequality has been associated with lower growth. But as with all correlations, we should be very careful about interpreting this as causation. It might be that countries whose growth slows for any reason tend to experience an increase in inequality, as politically powerful groups stop focusing on expanding the pie and start trying to appropriate more of the pie for themselves.

The IMF and OECD list some channels by which inequality might actually be causing lower growth. The most important one has to do with investment. When poor people have more money, they can afford to invest more in human capital (education and skills) and nutrition. Because these investments have diminishing marginal returns — the first year of schooling matters a lot more than the 20th — every dollar invested by the poor raises national productivity by more than if it gets invested by the rich. In other words, the more resources shoring up a nation’s weak links, the better off that nation will be.

That’s a plausible hypothesis. But there might also be other factors contributing to the correlation between inequality and growth. It could be that there is something out there that causes both high inequality and low growth at the same time.

The obvious candidate for this dark force is crony capitalism. When a country succumbs to cronyism, friends of the rulers are able to appropriate large amounts of wealth for themselves — for example, by being awarded government-protected monopolies over certain markets, as in Russia after the fall of communism. That will obviously lead to inequality of income and wealth. It will also make the economy inefficient, since money is flowing to unproductive cronies. Cronyism may also reduce growth by allowing the wealthy to exert greater influence on political policy, creating inefficient subsidies for themselves and unfair penalties for their rivals.

Economists Sutirtha Bagchi of the University of Michigan and Jan Svejnar of Columbia recently set out to test the cronyism hypothesis. They focused not on income inequality, but on wealth inequality — a different, though probably related, measure. Concentrating on billionaires — the upper strata of the wealth distribution — they evaluated the political connections of each billionaire. They used the proportion of politically connected billionaires in a country as their measure of cronyism.

What they discovered was very interesting. The relationship between wealth inequality and growth was negative, as the IMF and others had found for income inequality. But only one kind of inequality was associated with low growth — the kind that came from cronyism. From the abstract of the paper:

[W]hen we control for the fact that some billionaires acquired wealth through political connections, the effect of politically connected wealth inequality is negative, while politically unconnected wealth inequality, income inequality, and initial poverty have no significant effect.

In other words, when billionaires make their money through means other than political connections, the resulting inequality isn’t bad for growth.

That’s a heartening message for defenders of the rich-country status quo. If cronyism is the real danger, it means that a lot of the inequality we’ve seen in recent decades is benign. Eliminate corrupt connections between politicians and businesspeople, and you’ll be safe.

But Bagchi and Svejnar’s finding cuts two ways. It also means that plain old inequality isn’t beneficial for growth, as its defenders have claimed. That removes one of the big objections government policy makers face in talking steps to reduce inequality — and that doing so is unlikely to hurt economic growth.

 

By: Noah Smith, Bloomberg View, Bloomberg Politics, December 24, 2015

December 28, 2015 Posted by | Crony Capitalism, Economic Growth, Economic Inequality | , , , , , , , , | 2 Comments

“Eradicate The Inequality And Anger”: If You Want To Beat Donald Trump, You Have To Do More Than Call Him A Fascist

The American political establishment, from the Democratic Party elite to their Republican counterparts, have discovered something alarming. There is now wide agreement that Donald Trump is a gigantic bigot and at least a quasi-fascist. He has been described as such by many ideologically diverse politicians and commentators, from the liberal Martin O’Malley to the conservative Max Boot.

And it hasn’t dented his support at all. On the contrary, Trump has surged ever higher in the polls.

As Matt Yglesias argues, Trumpism is the natural result of conservative political strategy. Republicans refuse to accept immigration reform — even though it could potentially help them make inroads among Latinos. They have also long refused to promulgate any economic policy that isn’t preposterously slanted towards the rich. Their only political road left is turning out lower-class whites — a not insignificant number of whom are outright racists — with rank race- and Muslim-baiting. As Ta-Nehisi Coates once wrote, race hustling — “profiting from their most backward impulses…stoking and then leeching off of their hate” — has a long history in American politics. As Greg Sargent points out, the rest of the GOP field, and particularly Ted Cruz, is only slightly behind Trump in anti-Islam fear-mongering.

Trump is obliterating the GOP brand among Latinos. Other minority groups who might have a natural affinity for conservative policy — ironically, including American Muslims, who are generally well-off and broke for Bush in 2000 — will be repelled by the perception that the GOP is the party of racists. Any such damage to the Republican image will be extremely hard to undo, so there will be continual temptation to go all in on the politics of racism.

Demonstrating the bigotry of Trumpism is a worthy and necessary task. Condemning Trump as the rebirth of Mussolini (as I have done), or attacking his supporters as unpatriotic, is worthwhile. But it’s not enough.

It’s time for liberals to start thinking about what to do against a political opponent that openly subscribes to bigotry. It’s time to start building anti-fascist political institutions. I fear that calling Trump a fascist will make no dent at all in the Trump phenomenon. Left-leaning Americans need to start thinking about building the brute political muscle to beat him.

What does that mean? Namely, that only a broad-based political movement, aimed at providing jobs and economic security for every American of every race, can permanently defeat what Trump represents.

That means politically activating the people who are the recipients of Democratic policy but do not vote (particularly the poor). One of the most devastating lines I’ve heard in American politics comes from a Republican political advisor in Kentucky: “People on Medicaid don’t vote.” That is part of why Matt Bevin was able to cruise to easy victory in that state after having promised to snatch health insurance from hundreds of thousands of people.

Unions should take the lead. Organizing is flaring up in food and service industries, contributing to small policy successes such as a $15 minimum wage at the city level. A small fraction of VW workers at a Chattanooga plant recently got union representation — the first United Auto Workers victory at any foreign-operated firm. Further organizing is desperately needed, and Democrats who know what’s good for them should immediately pass pro-union legislation such as card check or a repeal of Taft-Hartley the second they get a chance.

Churches also play an underrated role in left-leaning politics. Though regular church attendance is generally correlated with more conservative politics, fully 40 percent of people who attend church weekly still voted Democratic in 2004 (and 49 percent of white Catholics). As Elizabeth Stoker Bruenig points out, the teachings of Jesus Christ are highly amenable to a left-leaning interpretation.

Other parties could also be built up, particularly in insanely corrupt blue states like Illinois or New Jersey. The sad truth is that the Democrats — the party of Andrew Cuomo, Hillary Clinton, and Rahm Emanuel — are not a particularly great vehicle for the sort of policy that would actually benefit unions or the poor. The Working Families Party has had limited success shifting the balance of power in New York politics; more could be done.

Other experiments, such as Jacobin‘s reading group network, or perhaps a revitalization of tired online organizational models from the Bush years, ought to be tried or expanded.

Inequality in America is enormous. For the first time since the ’60s, at least a majority of Americans are not in the middle class. This is another way of saying that society has largely ceased to function for great swathes of the population. That, I believe, is a big root cause behind the rise of Trumpism. Anger and hatred — powerful political motivators indeed — fester under such conditions. To beat Trump, we can’t just call him a fascist. We have to build the movement and institutions that will eradicate the inequality and anger in which fascism thrives.

 

By: Ryan Cooper, The Week, December 11, 2015

December 16, 2015 Posted by | Democrats, Donald Trump, Economic Inequality | , , , , , , , , | 4 Comments

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